Transcript 585ca27def201

CONFIDENTIAL
Nokia Case Study:
Winning in the U.S.
Discussion document
December 2000
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client organization
without prior written approval from McKinsey & Company. This material was
used by McKinsey & Company during an oral presentation; it is not a complete
record of the discussion.
FINGERPRINT – NOKIA
High
Rating
Rationale
Low
Product
 Product and category selection
• Focused on high growth categories (e.g., mobile phones, digital)
 Products optimized for US market
• Anticipated shift to digital technology in the U.S. before competitors and directed resources to
optimize opportunity; tailors products to target customers (e.g., fashion covers for younger segment)
Capabilities
 Resources
 Research and development
 Market relations
 Distribution and sales channels
 Marketing
 Alliances and acquisitions
Organization
 Aspiration and priority
 Talent
 Decision making and
responsibilities
• Devotes sufficient resources to local organization to win in market (e.g., provided resources for U.S.
to win in mobile phone segment)
• Outsources non-core technologies (e.g., microprocessors from Intel, components form Motorola) and uses
standard components to save on R&D spend and react faster to changing technologies than its
competitors; leverages partnerships for more efficient R&D (e.g., JV with Cisco, Geoworks, HP)
• N/A
• Creates broad distribution reach through numerous, innovative relationships with retailers and
distributors (e.g., Sears, AT&T wireless services,Tandy)
• Develops and launches innovative marketing campaigns (e.g., first to target consumers rather than
professionals)
• Successfully allies and acquires to gain capabilities (e.g., joint venture with Tandy for distribution,
acquisition of Mobira to enter promising mobile phone area)
• Some difficulty to attracting top-tier local senior management due to glass ceiling (e.g., all senior
leadership in Finnish0; Finnish managers used to manage U.S. operations
• Succeeds in attracting top engineers because of attractive products
• Local managers have limited autonomy and accountability exists at the unit level, but head office
retains final input
 Culture, values and style
• Difficulty translating “The Nokia Way” to U.S. (“The culture doesn’t have the same richness or value
as it does in Europe”)
 Coordination mechanisms
• Encourages sharing of best practices but has not been very successful at doing so to date
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NOKIA
Background
Levers for success
Revenues
$ Billions
Capabilities
6.2
19.8
ROW
19
21
• First to use mass marketers as distributors
(e.g., selling mobile phones in Radio Shack)
EUR
68
54
• Uses alliances for distribution channels (e.g., AT&T Wireless
Services, Sears)
Americas
13
25
1995
1999
• Adopts consumer rather than professional focus in marketing,
unlike competitors
58% CAGR
• Uses alliances in R&D to grow development capabilities
(HP, Cisco, Geoworks)
Stock appreciation (1998-99)
CAGR %
Organization
Nokia
52
• Autonomy provided to senior leadership in local subsidiaries
• Top management is all Finnish; obstacle to hiring top U.S. talent
16
S&P
S&P cell and
wireless index
• Strong emphasis on corporate values and culture with “The
Nokia Way” – teamwork, innovation, production; difficult to
implement in U.S.
22
Key facts
• Largest 1 -3 year revenues growth of competitors
• Largest mobile phone manufacturer and second largest provider
worldwide (behind Ericsson)
• Excellent opportunities for advancement-fast career tracks, early
responsibility, rotation programs
• Hierarchy and bureaucracy reduced
• Young, innovative, non-rigid leadership style
• Rated in Fortune top 100 firms to work for in the U.S.
Products
• Mobile phones
• GSM/DSC networks
Competitors
• Ericsson
• Motorola
Product
Timeline
• Grew mobile phone segment from 16% of total sales in 1991 to
66% in 1999
• Developed into conglomerate (flooring, TV, footwear, etc.) until refocusing
on high growth mobile phone segment in late 1980s and 1990s
• Allied to gain product expertise (e.g., Motorola to standardize
technology, Cisco and HP to develop network products)
1865
• Technology design innovator; first to market with many product
innovations
1960s
1981
Founded Operates
Acquires
as paper as a
Mobira
mill
conglomerate
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1983
1988
1990s
Enters U.S.
through
Tandy JV
Divests
Grows mobile
non-core
business in
businesses U.S.
• Tailored product to target key customers (e.g., phones with
fashionable, changeable covers to attract young segment)
2
CONTENTS
• Company overview
• U.S. market entry strategy
• Products
• Capabilities
• Organization
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NOKIA COMPANY BACKGROUND
• Founded 1865, in Finland, as a pulp and paper mill
• Entered U.S. in 1983, when cellular service was just launching in the U.S.
• Global employees 55,260; in U.S. 10,500
• CEO: Jorma Ollila (Finnish)
• Most senior managers for U.S.:
– Kari-Peleka Wilska, President of Americas
– Rich Geruson, Head of USA Sales and Marketing for Nokia Mobile Phones
• Key divisions: Mobile Phones, Nokia Networks, Communications Products
• Market cap: $193.3 billion (as of October 27,2000)
• Key industry of focus: Mobile phones (65% of 1999 total sales)
– Number 1 mobile phone maker globally
– Number 2 GSM/DCS mobile phone networks provider globally
• Competitors: Motorola, Ericsson
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Nokia has evolved substantially since its foundation, moving from a Finnish paper mill,
to a diversified Finnish conglomerate to a global wireless leader.
COMPANY EVOLUTION
Acquires and allys into
mobile phones and U.S.
Expands in Scandinavia
and Europe
Conglomerate phase
1800s
• Founded 1865 in
Finland as pulp and
paper manufacturer
• Constructs own power
plants as industry
becomes energy
intensive
1970s
• Oil crisis in 1973 reduces
reliance on exports (timber
products and machinery) to
1960s
Soviet Union (12% of sales)
• Merges with Finnish Rubber
•
Kari Kairamo, appointed CEO
Works and Finnish Cable
in 1975, realizes that for
Works in 1966 as part of
Nokia to grow it has to expand
diversification plan
abroad; expands Nokia in
• Begins to design and
manufacture data processing, Scandinavia and Europe
• Sells switching systems under
industrial automation, and
license from allocated
communications systems
(French)
• Nokia conglomerate consists
•
of integrated cable operations, Helps design world’s first
international cellular system in
electronics, tires, and rubber
the 1970s
footwear
• Makes first public share
offering in 1966
Source: International Directory of Company Histories
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Allys to strengthen U.S.
position
1990s
• Aggressively grows mobile
phone business in the U.S.
1980s
•
Buys Tandy’s share of JV in
• Acquires nearly 20
electronics companies over 1993 to fully own factories
in U.S. and South Korea
the decade and completes
•
Signs significant contracts
key mergers
to increase distribution
– Acquires Mobira (Finnish
mobile phone company) in channels (e.g., AT&T
Wireless Services)
1981, to gain foothold in
growing mobile phone
segment
– Merges Salora (largest TV
manufacturer in
Scandinavia) and Luxor
(Swedish-state owned
electronics and computer
firm) in 1984
• Through the ‘80s,
manufactures OEM
equipment for Hitachi;
Ericsson, Northern Telecom,
Granada, IBM
• Enters U.S., in 1983 through
JV with Tandy Corporation to
sell Nokia phones under
Tandy name
• Launches first product
(mobile phones) marketed
internationally under Nokia
brand name in 1986
5
When planning Nokia’s future development, CEO Jorma Ollila distinguishes clearly between three
waves. The first wave emphasizes the continuous exploitation of Nokia’s core businesses. The
second wave requires the identification of capabilities and products that will have impact on Nokia’s
success in the immediate future. Finally, the third wave determines the company’s future direction
through setting aspirations and placing options.
LEADERSHIP COMMITMENT ACROSS THREE HORIZONS
Profit
“We are
now benefiting
from the visionary
technological solutions we
made years ago; the longterm success of our
company requires constant
agility in positioning
ourselves in this
dynamic industry.”
– Jorma Ollila, CEO
“To identify what is
required in the long term
you need the
competencies and the
products; getting the
right focus is the
tough part.”
– Jorma Ollila, CEO
“The CEO has to
understand the
dynamics of each
business the company
is in; in order to
understand where the
future lies.”
– Jorma Ollila, CEO
Horizon 3
Secure future
options
Horizon 2
Build momentum of emerging
growth engines
Horizon 1
Drive core growth
Time
Source: Annual reports; press clippings
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PLANNING ACROSS THREE TIME HORIZONS
Profit
Products
Markets
Horizon 1
Horizon 2
Horizon 3
Drive core growth
Build momentum of emerging
growth engines
Secure future options
• Boost mobile phone sales
through brand-building
efforts
• Make product extensions
such as “Swatch-like neoncolored mobile phones”
• Expand product range
through new features and
complementary accessories,
such as phone covers or
different battery sizes
• Create R&D alliances for
product development in wireless
data transmission and terminal
technology
• Increase sales of fixed
and cellular network to public
telecom operators
• Win private telecom operators as
new customers
• Launch first wireless products
(e.g., Nokia 9000 Communicator,
a portable with phone, fax, email,
Internet access all in one)
• Further penetrate
Scandinavia, parts of
Western Europe
• Improve positioning in
Asia/Pacific, US, other EUcountries through stronger
distribution network
• Prepare for full deregulation of telecom
industry and entry into remaining markets
Horizon 3
Secure future
options
Horizon 2
Build momentum of emerging
growth engines
Horizon 1
Drive core growth
Source: McKinsey analysis
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Time
7
SENIOR MANAGEMENT
Name
Role
Nationality
Jorma Ollila
Chairman and CEO, Nokia Corp.
Finnish
Pekka Ala-Pietilä
Finnish
Matti Alahuhta
President, Nokia Corp. &
Communications Products
President, Mobile Phones
Sari Baldauf
President, Networks
Finnish
Mikko Heikkonen
Finnish
Olli-Pekka Kallasuvo
EVP & General Manager, Customer
Operations, Networks
EVP and CFO, Nokia Corp.
Dr. Yrjö Nevvo
EVP and CTO, Mobile Phones
Finnish
Veli Sundbäck
EVP, Corporate Relations and Trade
Policy, Nokia Corp.
EVP, Europe & Africa, Mobile
Phones
Finnish
Anssi Vanjoki
Spent 6 months
in the U.S. in 1999
Finnish
Finnish
Spends 50% of
his time in Silicon
Valley
Finnish
Source: Annual Report
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NOKIA ORGANIZATIONAL STRUCTURE
Nokia Group
Jorma Ollila, CEO
Head office
functions
• CFO
• International
Trade Policy
• Technology
• Research
Center
• General
Counsel
• Human
Resources
• Communications
• International
Trade Affairs
Nokia Networks
Nokia Mobile
Phones
Nokia
Communications
Products
“I am influenced by the American way of
managing companies; solving problems
through organising and motivating people,
rather than seeking a technical solution.”
– Jorma Ollila
Nokia Ventures
Nokia Research
Center
Nokia Wireless Business
Communications
Nokia Multimedia
Terminals
Nokia Industrial
Electronics
Nokia Internet
Communications
Nokia Wireless Software
Solutions
Nokia Ventures
Fund
Nokia IP Application and
Connectivity Platform
Internal Venturing
Unit
* As of January 2000
Source: Epsicom Business Intelligence
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Nokia clearly outperforms the market and its competition.
NOKIA STOCK PRICE COMPARISON
$ Thousands
12,000
Nokia
10,000
8,000
Value
6,000
4,000
World telecom
equipment index
2,000
0
S&P 500
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Source: Data stream
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Nokia’s sales in North America have grown dramatically in the late 90’s with a CAGR of 58 percent,
while European contribution to sales has diminished steadily shrinking.
NOKIA SALES BY REGION
Euro Millions
CAGR
Percent
100% =
6,191
6,613
8,849
13,326
19,772
34
AsiaPacific
19
22
23
21
21
37
68
62
59
58
54
26
16
18
21
25
13
58
1995
1996
1997
1998
1999
Europe
North
America
Source: Annual reports
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Nokia’s sales in Finland have fallen dramatically as a percentage of total sales.
NOKIA’S FINLAND SALES COMPARED TO REST OF WORLD
Euro Millions
1991
100% = EURO 2,600
1999
100% = EURO 19,772
Finland (395)
Finland
(676)
2
26
74
ROW
ROW
98
Source: Annual reports
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In 1998, Nokia became the world’s largest manufacturer of mobile phones, selling 40.8
million handsets, and grew sales grew 51 percent from 1998 to 1999.
NOKIA’S INDUSTRY FOCUS AND PRODUCT MIX
Euro Millions
Sales by product
1991
100% = EURO 2,600
1999
100% = EURO 19,772
Basic industries
Telecommunications
Home, multimedia,
and other
5
9
12
Mobile
products
“Three years ago we
decided to create a telecom-oriented
company. We have been able to
implement the changes faster than
we expected.”
– Jorma Ollila,
Financial Times,
09/07/1995
33
16
Consumer
electronics
Network
solutions
29
66
30
Mobile
products
Cables and
machinery
Nokia’s products
• Mobile products – full range of digital and analog cellular phones, wide-area pagers, as well as accessories and components for mobile phones
• Network solutions – telecommunication systems and equipment for both fixed and mobile networks; principal products include digital exchanges,
transmission systems, and cellular systems, which are sold to PTT, public utilities, new operators, and cable TV companies
• Home, multimedia and other – includes PC and workstation monitors, as well as interactive digital satellite and cable terminals
Source: Annual reports
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Nokia covers an expansive geography.
NOT EXHAUSTIVE
SUBSIDIARY LOCATIONS AND RESEARCH CENTERS
Research
(3)
(2)
(1)
(7)
(4)(1) (1)
(2)
(1)
(6) (1) (2)
(3)
(1)
(2) (3)(6)
(2)
(3)
(1)
(2)
(5)
(2)
(1)
(1)
(1)
(3)
(1) (2)
(2)
(7)
(9)
(17)
(2)
(4)
(1)
(2)
(6)
(1)
(1)
(1)
(14)
(1)
(1) (5)
(1)
(1)
(1) (3)
(2)
(3)
(1)
(3) (2)
(2)
(3)
(5)
(1)
(2)
(1)
(2)
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CONTENTS
• Company overview
• U.S. market entry strategy
• Products
• Capabilities
• Organization
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STORYLINE
• At the beginning of the 1980’s Nokia was still a diversified company, relying
predominantly on Europe (particularly Scandinavia) to drive sales
• However, the company realized that significant growth would be dependent on building a
major presence in the U.S. market, in high return segments
• To do so they acquired Mobira (Finland) in 1981 to gain a foothold in the rapidly
emerging mobile phone sector. They rapidly grew this opportunity in the U.S. through a
series of OEM relationships (GTE, Delco, Southwestern Bell, Bell Atlantic) and a joint
venture with Tandy Corporation in 1983
• Nokia launched their own brand mobile phone in 1986 and pursued aggressive branding
and alliance strategies (e.g., Rooftop Communications, Compaq, AT&T Wireless
Services) to solidify their presence
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Nokia was the first player to use mass market distribution channels for
telecommunications equipment.
TIMELINE OF KEY EVENTS IN NOKIA’S U.S. BUSINESS
1986
• Launches own brand
product globally
1983
1986
1983
• Cellular service
launched in U.S.;
JV with Tandy
Corp. to sell Nokia
phones through
6,000 Radio
Shack stores; JV
includes joint
ownership of
factories
1988
• Divests flooring,
paper, rubber, and
ventilation systems
businesses
1988
1992
Early and mideighties
• Aggressively
sought and
signed OEM
deals with
numerous
U.S.
companies
(e.g., GTE,
Delco, etc.)
1993
• Acquires Tandy’s share in both
manufacturing companies; overall,
operates 5 factories; continues selling
through Tandy retail formats
• De-emphasizes consumer electronics
business
1993
1992
• Nokia and Tandy
Corp. open a
mobile phone
factory in Texas;
North and South
American markets
are half of global
mobile phones
market
1994
1992
• Begins to
aggressively
market
own
branded
products
1995
1997
• CFO of Nokia deployed as
Head of U.S. business; U.S.
subsidiary sees immense
growth from 1997-99
1996
1995
• New distribution
facility opened in
Fort Worth, TX
• Granted license to
American Portable
Telecom (private
cellular network
operator) for PCS
1,900 MHz product
1997
1996
• Signs significant
contracts with
AT&T Wireless
Services, Sprint
Spectrum, and
Powertel
Source: International Directory for Company Histories, Annual Reports, press clippings
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CONTENTS
• Company overview
• U.S. market entry strategy
• Products
• Capabilities
• Organization
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Nokia made big bets as to which technologies would emerge, redirecting resources and
company focus to emphasize these categories.
PRODUCT STRATEGY
Focuses on high
growth markets
• Altered category focus of product offering to capitalize on expectations of high growing mobile phone market in the U.S.
– Divested majority of conglomerate (e.g., flooring, paper, rubber, ventilation)
– Grew mobile phone segment from 16% of total sales in 1991 to 66% in 1999
• Increased focus on network solution – important part of U.S. market
– Developed intelligent network systems in cooperation with Hewlett-Packard
– Developed ATM-based network products in cooperation with Cisco
• Caught digital shift early in the process before competitors (e.g., Motorola)
• Aggressively launched new product lines based on its predictions of winning technologies
– Introduced 17 new products in 1998
– Produced world’s first GSM phone, fully compliant with wireless application protocol (Nokia 7110)
– Only vendor to aggressively push every 2.5G technology, emerging clear winner in GPRS (Europe)
– First manufacturer to simultaneously launch hand portable phones for all major digital systems
– Ultra-light Nokia 2100 product family catered to GSM, PCN, America’s TDMA and Japan’s digital system
Tailors products
 Tailored product to target customers
– Introduced interchangeable, fashionable cell phone covers to attract younger segments
“The choice of focus is extremely important.
We constantly strive to make sure we are focused on
targeted markets in which the growth rate is much higher
than that of the total market, Nokia’s aim is to grow somewhat
faster than the targeted markets do.”
– Matti Alahuta, President, Mobile Phones
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Nokia’s acquisitions in the U.S. were primarily to broaden its product capabilities.
PRODUCT ACQUISITIONS
Date effective
Target name
Target business description
Acquisition price
Capabilities acquired/strengthed
5/31/1991
Century Tele Entps-FL
Paging
Provide beeper communication
services
N/A
Acquired paging operations
2/15/1995
GeoWorks, Inc.
Develop systems software
Acquired and 8.95% stake
for $7.5 million
6/28/1996
Syncro Machine Co.
Manufacture metalworking machinery
N/A
6/3/1997
Ipsilon Networks
Manufacture networking equipment
Acquired undisclosed
minority stake
1/12/1988
Ipsilon Networks
Manufacture networking equipment
$120 million
Acquired remaining majority interest;
deal was subject to regulatory
approval
2/18/1999
Intalk Corporation
Provide wireless solutions
N/A
Leverage freedom of wireless LANs
to gain access to network files, the
Internet, e-mail, video and video
teleconferencing from any location
3/10/1999
Diamond Lane
Communications
Develop ASDL technology
$125 million
9/1/1999
Rooftop
Communications
Corporation
Manufacture telecommunication
equipment
$57 million
Internet protocol technology
10/22/1999
Telekol Corporation
Provide telecommuncations services
$56.5 million
IP telephony and wireless LAN
offering; enhancing technology
“know-how” in corporate
communications applications
12/13/1999
Teleware
Provide solutions for mobile Internet
N/A
Software security expertise
3/6/2000
Network Alchemy
Provide IP clustering solution services
$335 million
Patented IP clustering technology;
platform to build secure IT solutions
8/29/2000
DiscoveryCom
Provide broadband/network services
$220 million
Broadband DSL technology
and services
Transmission technologies
development
Source: Securities Data Corporation and press clippings
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CONTENTS
• Company overview
• U.S. market entry strategy
• Products
• Capabilities
• Organization
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Nokia has developed a strong capability platform in the U.S.; primarily driven by
alliances and partnerships.
CAPABILITY PLATFORM
Marketing
• Developed, launched and ran innovative consumer goods marketing campaigns unlike their
competitors who were running professional focused campaigns
– Established brand name in the U.S. through clever consumer segment targeting (e.g., extensive ads
on MTV to reach younger segments)
Distribution
• Developed relationships with retailers and distributors to broaden and deepen market penetration
– JV with Tandy Corporation to sell through Radio Shack
– OEM manufacturing for GTE, Delco, Southwestern Bell, Bell Atlantic mobile systems and others
– Distribution agreement with Sears
– Distribution contracts with AT&T Wireless Service for Nokia branded mobile phones
R&D
• R&D controlled out of Finland
• Leveraged partnerships for more efficient R&D
– Cooperation with Geoworks to develop next generation wireless products
– JVs with Hewlett-Packard, Cisco, Geoworks for high-tech product development
• Low investment, high return R&D strategy provides competitive advantage to Nokia who can react
faster to changing technologies than any competitor
– Use of standard components to enable outsourcing of non-core technologies (e.g., micro processors
from Intel, components from Motorola, semi-conductors from AT&T)
– Similar product design allows Nokia to use the same production line for multiple products and enables
them to react quickly to changes in demand by shifting from one model to another
Alliances/partnerships provide
a large portion of Nokia capabilities
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Starting in 1994, Nokia increased corporate brand awareness through vigorous
advertising campaigns.
BRAND DEVELOPMENT
Creating pull
through building
brand awareness
Nokia 6100 Series phone
 Early adoption of consumer brand advertising rather than
technology focus
 Strategic TV advertising (e.g., through CNN to reach business people,
through NBC Superchannel and MTV to reach younger segments who
took to the convenience and style of the products)
 Aggressive advertising in print media (e.g., Business Week, Fortune)
 Strategic sponsorships (e.g., The Tonight Show with Jay Leno,
Formula One Team, Super Bowl Football Classic)
 “The fact that we are positioning ourselves in the same class with the
world’s megabrands makes magnificent image marketing for us.”
– Tanpani Yli, Savnamäki, Nokia Vice President
Increasing
efficiency and
surface area of
sales channels
 Joint venture with Tandy Corporation to deliver mobile phones
to more than 6,000 Radio Shack stores
 Distribution contract with AT&T Wireless Services, for
Nokia-branded mobile phones
 Distribution agreement with retail giant, Sears
 OEM manufacturing for companies including GTE, Delco,
Southwestern Bell, Bell Atlantic mobile systems
Source: Annual reports; press releases; press clippings; company web site
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Nokia kept its advertising consumer friendly and easy to follow, in contrast to their
competitors who targeted professionals
NOKIA COMMUNICATION STRATEGY
• Since the early nineties Nokia’s value proposition to the consumer has
been single-minded on ‘simplicity’ and ‘ease’ of using mobile phones
• The proposition of ‘simplicity’ is further enhanced by the tone of voice
and visuals used in the communication
• The proposition has been communicated through all their
communication efforts both in mass media and at point-of-sale
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Every third Nokia employee works in R&D. R&D centers exist in 14 countries on four
continents.
R&D EXPENDITURES 1995
Percentage of sales
15.3
Nokia spends relatively little on R&D, but
still achieves a high return on its R&D
investment through
• Numerous R&D partnerships with outsiders such
as universities, and high-tech companies
• Outsourcing of non-core technologies (e.g.,
microprocessors from Intel, components from
Motorola, semiconductors from AT&T)
8.1
6.9
• Focused R&D programs concentrating
resources on future growth areas; e.g., cellular
data transmission
Nokia
Motorola
Ericsson
• Use of cheap industry standard products as a
base rather than more expensive systems
Source: Press articles; annual reports; ECCH Collection Case Study
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Nokia has built extensive R&D partnerships. For example, at the beginning of 1994,
Nokia signed an agreement with Hewlett-Packard to cooperate in the development of
Intelligent Network systems for telecommunications operators. The agreement centers
around the integration and development of key IN architecture elements.
NOT EXHAUSTIVE
JOINT R&D ACTIVITIES
Partner company
Products
Start
AT&T, U.S.
GSM components
1989
Qualcomm, U.S.
CDMA technology
1990
Cicso, U.S.
ATM networks
1994
Geoworks, U.S.
Wireless products
1995
Psion, U.S.
Software for GSM
1996
“We do not aim to do everything
by ourselves; and when it’s
necessary we form partnerships
with other pioneers of
technology; this means focusing
on what we are best at and
complementing it with the
expertise of others.”
Source: Press clippings; press releases; Internet homepage
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In 1995, Nokia and Cisco Systems, U.S., established a strategic alliance to develop
ATM-based network products to provide total telecom service solutions to
companies.
NOKIA/CISCO R&D ALLIANCE – EXAMPLE
Cisco
• Data and private network/corporate
applications know-how (market leader in
switched internetworking; e.g., routers,
LAN, and ATM switches
Nokia
• Experience in telecom operator business
• Expertise in voice transmission infrastructure and network management
Objective
To jointly develop ATM-based
(broadband) service solutions for
competitive telecom operators in
deregulated markets that provide
services for
• Corporate customers: need to
increase connectivity across
the company
• Residential customers: require
advanced data and video
(multimedia) services
“This cooperation
answers the need for faster
building of new competencies,
faster R&D cycles, and the
right timing of product
launches.”
President,
Nokia TelecommunicationsÌ
Network and Access
Systems Division
Source: Nokia press release; press articles
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Nokia used strategic alliances to gain a number of product and marketing capabilities in
the U.S.; Nokia was particularly active in 2000.
STRATEGIC ALLIANCES
NOT EXHAUSTIVE
Date
Alliance-Partner
Capabilities
Deal description
Imact
 Sep-00
 Siebel Systems
 Marketing
 Selling
 Development
 Worldwide joint marketing,
collaborative selling, and extensive
development of mobile
eBusiness applications
 Enables complete end-to-end mobile
eBusiness solutions for Nokia customers
 Sep-00
 Tellabs
 Development
 Strategic agreement to enhance ATM  Enables end-to-end managed, integrated
and IP transmission
mobile transmission platform, offering
evolution towards ATM and IP for operators
 Sep-00
 Compaq
 Marketing
 Development
 Co-development and marketing of
end-to-end mobile Internet and
Intranet solutions
 Enables mobile Internet solutions featuring
enhanced productivity
 Aug-00
 MobileSpring
(collaboration with
Nokia Venture Partner)
 Development
 Collaboration to identify and invest in
promising business plans for wireless
Internet services
 Provides opportunity to invest in latest
wireless Internet-related technologies
 Jun-00
 Real Networks
 Development
 Real Networks to provide Nokia
technology
 Brings Internet-based streaming audio and
video to Nokia’s cell phone users
 May-00
 Inktomi
 Development
 Joint development of infrastructure
for mobile Internet
 Enable delivery of next-generation mobile
data services and applications on current and
third generation networks
 Apr-00
 Cisco
 Development
 Alliance to boost the development of
mobile business
 Makes Nokia technology, including GPRS.
Edge and TDMA, compatible with Cisco’s
Internet backbone products. Allows Cisco to
train Nokia engineers
Source: Press clippings
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STRATEGIC ALLIANCES
NOT EXHAUSTIVE
(CONTINUED)
Date
Alliance-Partner
Capabilities
Deal description
Impact
 Sep-99
 Hewlett-Packard
 Selling
 Alliance
 Enables Nokia’s WAP sever to become
available on HP’s Unix and NY boxes
 Jun-98
 Psion, Ericsson,
Motorola
 Development
 Joint venture called Symbian to
develop Psion’s EPOC software as
an industry wide standard for “next
generation” mobile communication
and information products
 Enables commercial and technological
advantages for Nokia licensees, including
customizable user interfaces, colour
support, advanced Internet connectivity
and officially accredited software
 Mar-98
 Computer Sciences
Corporation
 Development
 Alliance
 Provides advanced, value-added services
for Nokia’s infrastructure customers
 Jul-96
 Psion
 Development
 Alliance to co-develop software
 Enables Nokia mobile users to send and
receive short messages over current and
future GSM networks
 Oct-95
 Cisco Systems
 Development
 Co-development of network
products based on the
Asynchronous Transfer Mode
 Enables Nokia to earn knowledge in data
and corporate applications from Cisco
Source: Press clippings
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CONTENTS
• Company overview
• U.S. market entry strategy
• Products
• Capabilities
• Organization
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Nokia has made several moves in the past years to better align its organization
ORGANIZATIONAL LEVERS
Hard
Structure
 Nokia organized into six groups to focus on high growth segments while divesting unprofitable businesses
 Announced new model of operation in 1996 to facilitate convergence and decision-making in the North and South Americas
Decision
rights
 Accountability is driven down to the unit level (low in organization)
 Managers have the freedom to explore new markets
 “Think global – act local” philosophy with autonomous local subsidiaries
People
 Extensive training and exciting opportunities provided; visible bias in favor of Finnish managers
– Extensive responsibility and challenges right from beginning
– Fast career tracks offered to junior staff
– Junior staff stretched early into management positions
 Dynamic and open culture with respect for individual
 Continuous learning emphasized through training and job rotation
 Attracts talent from top engineering schools and middle-managers from competitors (e.g., ICL and Digital); difficulty attracting
senior management in the U.S. due to lack of progression path
Soft
Culture and
beliefs
Leadership
style
 CEO vision and definition of core businesses are clearly communicated throughout the organization
 Performance bars are clearly communicated through explicit sales growth and ROCE targets
 Creation of “The Nokia Way” instilling reinforcing values of customer satisfaction, respect for the individual, achievement, and
continuous learning; difficult to inculcate in the U.S. which is not so receptive to foreign cultures
 Being on the front edge of technological advancement has served to unite the organization (e.g., WAP pioneers)
 Non-rigid leadership style
 Young and innovative management
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Nokia views people as its most important asset.
TALENT MANAGEMENT TECHNIQUES
Extensive recruiting
Select set of new hires
Managing the flow
“People are the most crucial resource
in managing growth; you have to
constantly recruit and integrate the
best people into your culture.”
“Teamwork – is one of the basic
elements of Nokia, we stress
communication and social skills, in
addition to professional excellence.”
“Much effort is invested in improving
induction programs; but we’ve got to find a
way to avoid bureaucracy and maintain
entrepreneurial spirit.”
• Recruiting events at international
universities and business schools
• Career opportunity ads in
international and regional
newspapers and on the Internet
• Creation of early ties through
international student exchange
program offering trainee placements
in all Nokia business groups
worldwide
• University degree preferably in
science or business studies
• Academic excellence
• Outgoing, confident personality
able to solve problems
independently, while at the same
time work in a team
• Quickly indoctrinate new personnel in the
Nokia way of doing business
• Instill a spirit of continuous learning in all
new employees
Source: Annual reports; Internet homepage
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Nokia’s growth targets are well balanced with its long term values.
NOKIA VALUES
Customer
satisfaction
Respect for the
individual
The
Nokia
Way
Continuous
learning
Achievement
• “We have achieved the best results
in units where there has been a
clear emphasis on continuous
learning, improving skills and
quality, ambitious goals, and also
respect for the individual; ensuring
that these values take root and
flourish throughout the Group is a
central theme permeating all of
Nokia’s human resource
development programs.”
– Jorma Ollila, CEO
• “Nokia Way” has been difficult to
implement in the U.S. -- “The
culture doesn’t have the same
richness or value as it does in
Europe”
Source: Internet homepage; annual reports
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Nokia’s culture is strongly oriented towards performance, tempered by a community
atmosphere
NOKIA’S GLOBAL CULTURE (EUROPEAN CULTURE)
FOR INTERNAL
USE ONLY
Performance-driven culture . . .
“We work hard; 10 hours – and if necessary –
12 hours a day…we have to make sure that
we don’t become…lazy.”
– Jorma Ollila, CEO
. . . with community feel
“Yes, Nokia is performance-driven . . . but
it’s also a fun place to work; for example,
it has rooms with pool tables where the
team can go and relax for a while.”
“Nokia is an extremely tough environment;
people work like hell; there’s an ongoing
joke that Nokia provides free eye drops,
because its employees’ eyes are always
red due to lack of sleep.”
“Underperformers are not fired; they stay
with Nokia, but are reassigned to less
demanding tasks . . . at least in Finland;
maybe that’s different in foreign
subsidiaries.”
“It’s a swim or sink mentality . . . but if
you survive you can be president of a
subsidiary after 3 years.”
“One important brick in building a
successful company is that the workplace
is fun and that everybody knows why they
are working there.”
– Petteri Waldea, Nokia Cable
Source: Interviews with McKinsey consultants; press clippings
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Appendix
The evolving focus of the company during the inflection period is reflected in the
changing annual report.
COMPANY DESCRIPTIONS
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1991 annual report
“Nokia is a European technology
group.”
1992 annual report
“Nokia is an international electronics
and electrotechnical group.”
1993 annual report
“Nokia is an international telecommunications and electronics group”
1994 annual report
“Nokia is a leading international
telecommunications company.”
36
Growth was fueled through pursuing multiple growth paths.
PURSUING MULTIPLE GROWTH PATHS
Existing
products and
services
• Continuously strengthen position
in the telecommunications
market
• Almost 100% of business
activities concentrated in
telecommunications
Existing
geography
Existing
competitive
arena
Existing
business
and
capability
platform
vs.
vs.
Existing value
delivery system
vs.
Existing
industry
structure
vs.
Innovation of
products and
services
vs.
Innovation of
value delivery
system
Improvement of
industry
structure
Expansion
into new
geographies
Move into new
competitive
arena
• 91% of 1995 sales outside
of Finland, compared to
52% in 1988
• Strongest growth rate
recorded outside of
Europe, especially in
Asia-Pacific
• New product development and extension
of existing product line through new
functionalities (e.g., push into wireless
office communication through Nokia
9000 Communicator combining phone,
fax, E-mail, and Internet access in one
portable unit)
• Innovative product design attracting new
customer segments
• First to use mass market distribution
channels for telecommunications
equipment out of need to quickly achieve
high coverage (e.g., selling mobile phones
in the U.S. through Radio Shack)
• Strategic alliances in R&D speeding up
technological development
• Contributions to development of industry
standards; e.g., EFR voice code developed
by Nokia and the University of Sherbrooke,
Canada, made industry standard for GSM
and DCS in 1995
Source: Annual reports; McKinsey analysis; press clippings
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EXPANSIVE MINDSET THROUGH STRATEGIC FOCUS
From . . .
. . . to
Unprofitable diversity in 1986
A global force in telecommunications in 1996
Finland
Cable
sold 1996
TVs
sold 1996
Utility
sold 1993-95
Footwear
sold 1988
Soft tissue
sold 1990
Telecom
equipment
Chemicals
sold 1991
Electric appliances
sold 1993-94
Non-telecom sales decreased from 70%–30% of sales
Manufacturing facilities in 14 countries, personnel
in 45 countries, sales in 120 countries
Telecom sales increased from FIM 2 billion–25.8 billion
Source: Annual reports, McKinsey analysis
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Nokia’s tremendous growth in the past few years can largely be attributed to its ability to
take advantage of technological shifts in the telecom industry. As Jorma Ollila explains:
“The two things that have helped us most have been the entry of new operators into the
cellular market and the shift from analog to digital.” (Financial Times, 23/09/94)
EXPLOITING TECHNOLOGICAL SHIFTS IN THE TELECOM INDUSTRY
Growth opportunities . . .
. . . captured by Nokia
• Strong focus on development and design of digital
mobile phones to achieve high-market penetration
Change from
analog to
digital
technology
• Early entry into those markets where cellular
networks were first developed to gain experience
in high technical and product quality standard with
relatively little competition
• Early commitment to GSM standard, which
later became the pan-European standard
cellular network
Development
of cellular infrastructure and
equipment
• Wide geographic coverage supplying customers
in 35 countries with GSM/DCS-based and NMTbased cellular networks
Source: HBS Teaching Note; press clippings
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NOKIA AN EXAMPLE OF SUCCESSFUL BRAND LAUNCH
Mobile
phones
 1963 – developed first
own radio phone
 1979 – founded Mobira
Oy (Nokia mobile
phones) jointly with
another Finnish
company, Salora
 Launched first FM pager
 Delivered first car phone
to the Scandinavian NMT
(analog) network
 Started sales in England
 Marketed first international
product – mobile phone –
under the Nokia name
 Released first Cityman
hand-portables
 Formed joint venture with
Tandy Corp. U.S., and
Matra, France, to produce
mobile phones for the
American and French
market
 Commenced manufacturing of mobile phones in
Bochum, Germany
 Acquired British mobile
phone manufacturer,
Technophone
 Develiverd first digital
phones for GSM and
TDMA networks
 Exported mobile phones to
Eastern Europe and South
America; offices opened in
Spain, Australia, Japan
 Started selling mobile
phones in Japan
 Formed joint venture with
Mitsui to market mobile
phones in Japan
 Introduced first series of
hand-portable phones for
all digital standards
 Established new
distribution centers in
Germany and the U.S.
 Launched the world’s
all-in-one communicator,
the Nokia 9000, in 1996
Timing
1960
Capability
platform
1975
Innovative product
development
1985
Operational
excellence in
manufacturing
1990
Strategic alliances
in marketing and
R&D
1992
International
expansion
1996
Brand recognition
in Scandinavia
and the U.S.
Source: Press clippings; Internet home page; annual reports
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Nokia’s strong commitment to decentralization provides it with the flexibility that has
been fundamental to its sustained success in a rapidly changing regulatory marketing and
technological environment. This is based in cooperation and teamwork to dismantle
bureaucracy but also an awareness of the dangers of the opposite extreme – anarchy.
THE NOKIA WAY: BALANCING BUREAUCRACY AND ANARCHY
“Our way of operating is based on a
decentralized organization and
measured control; managing growth of
our globalizing operations poses
unique challenges to our internal
communication and organization
flexibility…cooperation and teamwork
are the best ways of dismantling
hierarchies and rigid structures, and
preventing their establishment where
they have thus far been avoided.”
– Jorma Ollila, CEO
“The Nokia Way is about keeping a balance
between bureaucracy and anarchy, preserving
fast, decentralized decision making.”
– President, Nokia Mobile Phones
“The Nokia way of operating is based
on a flat, decentralized organization, in
which the emphasis is on efficient
teamwork and an entrepreneurial
spirit; flexibility, being able to innovate,
react speedily, and make fast and
effective decisions are the central
features of Nokia’s way of operating.”
– Jorma Ollila, CEO
Source: Press clippings; annual reports
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To best leverage internal capabilities, Nokia actively promoted cross-fertilization of
functional groups. Drawing upon R&D, sourcing, production, and sales, and marketing
skills ensures that tasks are performed by those who are most suitable.
“It is the people, their skills, and how they work together that matters most. Success
requires the cooperation of a team of experts.” (Internet homepage)
CROSS-FUNCTIONAL TEAMWORK
R&D
PRELIMINARY
Sourcing
Production
Marketing/sales
“It is the question of letting the people
who know how to do it, do it…it was an
exercise in the organization of people.”
– Jorma Ollila, CEO
Creation of
cross-functional teams in all units
Source: Press clippings
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By 1998, the deregulation process in European telecoms will be complete. However, fertile
growth space still exists in fast-growing markets such as China and India, which have recently
embraced deregulation. Nokia’s clear focus on capturing these opportunities is demonstrated by
its reorganization into global regional units. Furthermore, Nokia is training its managers to
develop local market capabilities.
THINK GLOBAL, ACT LOCAL . . .
Implement group-wide regional units
Nokia
America
Asia/
Pacific
Europe
“Nokia’s development into a
focused telecommunications
company with global business
activities requires that our
organization is continuously
developed; the changes to be
implemented continue the
development started in 1992.”
– Jorma Ollila, CEO
Train managers how to act locally in foreign markets
To develop its manager’s awareness for global issues in a local
context, Nokia launched a 5month project bringing together a
broad mix of hundreds of
employees for 3 day-long
brainstorming sessions in London
and Frankfurt
* As of January 1, 1997
Source: Press releases; press clippings
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Comparing Nokia’s business portfolio in 1986 to that of 1995 illustrates the extent to which Nokia
has changes. The basic industry lines such as paper, power, and chemicals as well as rubber and
flooring have been completely eliminated, while the main emphasis was placed on telecomoriented products. In 1996, this strategy continued with the withdrawal from color TV and a
further reduction in the cable business.
NOKIA PRODUCT PORTFOLIO IN 1986 AND 1995*
Nokia electronics
Nokia cables and machinery
Information systems
• Microcomputers
• Modems
• Point-of-sale systems
• Workstation networks
• Components (circuit boards,
thick film hybrid circuits, CAD
production manuals)
• Automation applications for
the wood processing and
energy sectors
Telecommunications
• Digital exchanges
• PCM equipment
• Radio links
Nokia Mobira
• Cellular handsets for NMT,
AMPS, TACS, R2000 and
Netz-C networks
• Pagers
• Base stations for cellular and
paging networks
Salora-Luxor
• TVs, VCRs, monitors,
components
• Satellite transmission equipment
Cables
• Telecom, power, and OEM cables
• Power projects
• Cable production equipment
• Capacitors
• Aluminium profiles and
contract rails
Machinery
• Cable making machines
• Industrial robots
• Sheet metal working machines
• Peripheral devices for the
computer industry
• Precision castings and mechanical
components for electronic
equipment
SLO (Electricity wholesale and
import of electrical capital goods
and consumer durables)
• Lighweight fixtures
• Electrical heaters, low and
intermediate voltage equipment
boards, cables
In production 1995
Nokia paper, power,
and chemicals
Nokia rubber and floorings
Paper
Rubber
• Soft tissue and related
• Tires
consumer products
• Footwear
• Electrical energy generation
• Industrial rubber products
and sale
– Roller coatings for printing
Chemicals
industry
• Bleaching agents for the wood
– Conveyor systems
processing industry (chlorine,
sodium hydroxide, sodium chlorite,
sodium borohydroxide, hydrogen
peroxide)
• Water treatment chemicals
* In 1996, Nokia announced the withdrawal from color TV and a further reduction in the cable business
Source: Nokia annual reports; press clippings; The Nokia Saga, 1994
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